Management and Organizational Studies 2285 Lecture Notes - Lecture 1: Invisible Hand, Comparative Advantage, Product Engineering

25 views6 pages
MOS
LECTURE 1
WHY DO FIRMS INTERNALIZE?
The nature of Businesses
- Corporations are separate legal entities, oligated to thei…
1. Owners (shareholders)
2. Customers
3. Employees
4. Community
- Legally required to make as much money as physically and legally possible
- Increase profit to aiize shaeholde’s ealth
- Profit is earned in two ways:
1. Lowering costs
- More efficient operations
- Procurement of less expensive raw materials
2. Increasing Revenues
- Innovation: new products or features that create more sales or higher sales prices
- Creating new markets for entire industry
- Taking share from competitors
What drives globalization?
- Efficiency drivers make more money by lowering costs
- Increased competition
- Investor expectations
- Market expansion drivers: make more money by selling more stuff to more people
- Saturated domestic markets
- Product characteristics that are transferable across borders
- Innovation
Globalizing it’s not so easy
- Local conditions are still relevant
- What works in one country may not work in another it goes beyond products E. What is seie, ualit,
how do different perceptions effect costs?
What facilitates globalization?
1. The decline of barriers of movement of goods, services, investments, skills, etc.
2. Technology: computers, transportation, communications, etc.
The business environment
- Businesses operate in complex environment, often full of uncertainty and turmoil
- Uncertainty makes it difficult to operate efficiently
- Four main aspects of the global business environment which diffe ad ease uetait ad opleit…
1. Social systems
- The system of shared beliefs, values customs and behaviours culture
- Different cultures have different perspectives toward many different issues including, religion, human rights,
and role of business
2. Political Systems
- The system of national or regional governance
- Collectivism vs. Individualism Socialism and Communism
- Democracy vs Totalitarianism Freedom and repression
3. Economic Systems
- The system in which commerce is conducted
- Market Economy: The invisible hand
- Command Economy The visible hand
- Mixed Economy: The gentle hand
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in
4. Legal Systems
- The system through which government enforces its regulations
- Different Legal Systems: Common, Civil and theocratic
- Rule of law or personal whim affects: contracts, property rights, intellectual property, product safety and liability
Implications for businesses
- Operating an international business is a tricky thing there are no guarantees
- You have to understand the business environment into which you are entering very well if you are going
succeed, but you still might fail
- Knowledge, understanding and patience are key
Why do businesses Go Global?
- Firms seek to increase profits through international production and sales.
1. Two General Strategies
2. Efficiency: Producing at a lower cost to provide more value to consumers than competitors
- Market expansion: Added value products so consumers will pay more for it, or more consumers will buy it
- Efficiency Drivers: make more money by lowering costs.
- Forced to be efficient by: Increased competition & Investor expectations
- Market Expansion Drivers: make more money by selling more stuff to more people
- “ell to othe outies he
Domestic markets are saturated
Product characteristics that are transferable across borders, seeking innovation from other
sources
- Fis a eoe oe effiiet o epad thei akets  eploitig thei o o aothe out’s Natioal
comparative advantage
- National comparative advantage: different resources endowments or competencies or cost advantages that are
prevalent within and relatively unique to a given country or society
- Examples: India software development, Japan Micro electronics, automobiles, Germany Product
engineering, Chemicals, Switzerland Banking, pharmaceuticals
National comparative advantage
- Depedig upo hat akes up a out’s atioal opaatie adatage, it a e a good o ad plae fo a
firm to internationalize
- Whether the country fits, the fi’s eeds deped upo hat the fi eeds to compete a strategic decision
- Out Sourcing: refers to the tendency among many firms to source goods and services from different locations
around the globe
- Firms evaluate the cost of production in different regions and move facilities around if the cost rise in one area
vs. another (portfolio perspective)
- If thee is a fit, a out’s atioal opaatie adatage a poide eefits i tes of eithe ipoed
efficiency or increased market share or both through: Location Economies & Economies of Scale
Locations economies
- Operating internationally allows firms to gain greater efficiencies by capturing Location Economies:
Locating different value chain activities in the optimal location (regardless of which country it is)
to capitalize on lower factor costs (labour, raw materials, transportation, regulatory compliance
etc.)
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in

Get OneClass Notes+

Unlimited access to class notes and textbook notes.

YearlyBest Value
75% OFF
$8 USD/m
Monthly
$30 USD/m
You will be charged $96 USD upfront and auto renewed at the end of each cycle. You may cancel anytime under Payment Settings. For more information, see our Terms and Privacy.
Payments are encrypted using 256-bit SSL. Powered by Stripe.